Tuesday, October 23, 2012
Bank of Canada Interest Rate Announcement - October 23, 2012
The Bank of Canada once again opted to hold its target for the overnight rate at 1 per cent this morning. Interest rates have been held constant for over two years, the longest such period since the 1950s. The Bank somewhat tempered its bias for higher future interest rates, including a softer statement regarding the appropriateness of a gradual withdrawal of monetary stimulus as excess supply in the economy is absorbed. In a bit of a surprise, the Bank actually raised its forecast for the growth in the Canadian economy this year to 2.2 per cent, but kept its 2013 forecast at 2.3 per cent growth. The Bank judges that at that pace of growth, the Canadian economy will return to full capacity by the end of 2013.
It is our view that monetary policy at the Bank of Canada will continue to be constrained by external events in the global economy and household debt growth at home. While the Bank's preference for tighter policy is clear, it is difficult to make a case for higher interest rates when core inflation is below the Bank's 2 per cent target and already slow economic growth is threatened by global uncertainty. Therefore, we are forecasting that the Bank of Canada will hold its target overnight rate at 1 per cent until mid-to-late 2013 when, conditioned on an improved global economic outlook, it may test the water with a 25 basis point rate increase.
Tuesday, June 12, 2012
Bank of Canada stands pat, cautions on Europe
The Bank of Canada kept its trend-setting Bank Rate at 1.25 per cent on June 5th, 2012. It was the 14th consecutive policy meeting in which borrowing costs have been left unchanged.
While the text accompanying the announcement left the door open to future rate hikes, the language used was considerably less hawkish than in the previous announcement in April as the Bank sounded a cautious tone over the recent deterioration of the situation in Europe.
The announcement begins, “The outlook for global economic growth has weakened in recent weeks. Some of the risks around the European crisis are materializing and risks remain skewed to the downside. This is leading to a sharp deterioration in global financial conditions.”
The Bank also noted that while the U.S. economy was continuing to expand, albeit modestly, emerging economies were slowing faster and a bit more broadly than expected. That more modest global momentum combined with heightened financial risk aversion has led to lower commodity prices, which is weighing on Canadian exports.
Canadian economic growth was slower than the Bank expected in the first quarter of the year, 1.9 per cent compared to a projected 2.5 per cent; however, underlying economic momentum remains in line with expectations.
That said, the composition of growth has become less balanced. Specifically, housing activity has been stronger than the Bank had been expecting, and despite external risks, business and household confidence has remained resilient amid very stimulative domestic financial conditions.
In contrast, the contribution to growth from government spending is expected to be quite modest going forward in line with recent federal and provincial budgets. Additionally, the recovery in net exports is likely to remain weak in light of the combination of reduced external demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.
The Bank said the Canadian economy continues to operate with a small degree of excess capacity, and that even though headline CPI inflation was expected to fall below 2 per cent in the short term due to lower gasoline prices, the core rate inflation was expected to remain around the target 2 per cent mark.
The announcement ended by reiterating that, to the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, the possibility of a rate hike was not completely off the table, but that the timing and degree of any such action would depend heavily upon how current heightened downside risks play out in the months ahead.
As of June 5th 2012, the advertised five-year lending rate stood at 5.34 per cent. This is down 0.1 percentage points from 5.44 per cent on April 17th, when the Bank made its previous policy interest rate announcement.
The Bank will make its next scheduled rate announcement on July 17th, 2012
Artice from Canadian Real Estate Association, June 5th, 2012
Monday, June 4, 2012
Home price trends continue to diverge in April
According to statistics released by The Canadian Real Estate Association (CREA), the MLS® Home Price Index, the leading measure of Canadian home prices, increased in April 2012.
The MLS®Home Price Index (MLS®HPI) rose 5.2 per cent year-over-year in April 2012. The increase was similar to those for the previous two months and among the smallest since last August. However, the moderation in overall price gains in recent months masks diverging trends among the major Canadian markets.
In April, the MLS® HPI again posted the largest year-over-year increase in Toronto (7.9%), followed by Calgary (4.0%), Vancouver (3.7%), the Fraser Valley (2.7%), and Montreal (2.3%).
Year-over-year price growth in Greater Vancouver slowed markedly in April and moderated in the nearby Fraser Valley. By contrast, Montreal — a market that tends towards more stable price growth — saw a small uptick in line with the aggregate index.
Toronto’s price index accelerated for the second straight month, consistent with its market balance where negotiations continue to favour the seller. Calgary is also now seeing prices begin to advance in earnest, supported by a strong economic outlook, recent gains in in-migration, and strong full-time job growth.
“Canadian home price gains are generally expected to moderate, but there are a few hot spots where prices are being fuelled by some very strong housing market fundamentals,” said Wayne Moen, CREA’s President. “Toronto has less than two months of supply compared to six months nationally, so it ranks among the tightest of Canadian housing markets. With prices moderating in some housing markets and bucking the trend in others, buyers and sellers should talk to their local REALTOR® to best understand how home price trends are evolving where they live. ”
Among the different housing types tracked by the index, single family homes again posted the biggest year-over-year gains in April (6.4%), led by two-storey single family homes (6.9%). The MLS® HPI for one-storey single family homes rose 5.6 per cent from April 2011, while townhouses and apartments saw gains of 3.6 per cent and 2.7 per cent, respectively.
“Just as there are some pretty clear differences emerging across markets right now, there have also been some interesting developments in price trends across housing types,” said Gregory Klump, CREA’s Chief Economist. “The one that really stood out in April was accelerating price growth for the townhouse segment right across the board. In Vancouver and the Fraser Valley, it was the only segment in which prices gains accelerated.”
Excerpt from MLS News Release, The Canadian Real Estate Association, May 25th, 2012
Monday, April 23, 2012
The Federal Budget - some good news for home owners
Federal Finance Minister Jim Flaherty tabled the 2012 Federal Budget on March 29, 2012. Eliminating the deficit by 2015 is a key goal and the government plans to do this by cutting spending by $1.4 billion in 2012/13 and by $3.9 billion in 2013/14 for a total of $5.3 billion. With unemployment steady at 7.5% and record household debt, property buyers and owners were looking for any glimmer of good news. The government did offer some hope.
• $205 million to extend the Hiring Credit for Small Business program to encourage hiring. A small-business employer can receive credit of up to $1,000 to help offset employment insurance premiums.
• $165 million over 2 years for responsible resource development which creates jobs and protects the environment.
• $150 million over two years on the Community Infrastructure Improvement Fund for repairs and improvements to community facilities.$99.2 million over three years to help provinces develop permanent flood mitigation measures.
• $67 million through the National Research Council on business-led, industry-relevant research.
• $60 million over two years to protect wildlife at risk.
• $35.7 million over two years for inspections and emergency preparedness to improve oil tanker safety.
Spending on innovation
• $500 million over five years, (to begin in 2014) to the Canada Foundation to support innovation in advanced research infrastructure.
• $105 million over two years to support forestry innovation and market development.
• $100 million to the Business Development Bank of Canada to support its venture capital activities.
• $37 million annually to granting councils to enhance support for industry-academic research partnerships.
Cutting red tape
• Streamline the multiple-step regulatory process to a single-step review known as “one project, one review.” This will include amending the Canadian Environmental Protection Act.
• Streamline the process for approving major economic projects.
• Introduce a legislative amendment clarifying the prohibition against banks selling life insurance.
There will be no new personal or corporate taxes or tax increases.
Excerpt from April 20, 2012 Realtor Link Article
Monday, March 5, 2012
Canada existing home sales forecast to rise in 2012
Sales to rise 0.3 pct in 2012 - CREA
* Sales to dip 0.3 pct in 2013
* Avg home price to fall 1.1 pct in 2012 to C$359,100
March 5 (Reuters) - Sales of existing homes in Canada are projected to increase slightly this year, but dip in 2013, the Canadian Real Estate Association said on Monday.
Sales are predicted to rise 0.3 percent in 2012 to 458,800 nationally, up from 457,305 in 2011, said CREA. The modest increase is attributed to rising demand in Alberta, Saskatchewan and Nova Scotia which is expected to offset declines in British Columbia, Ontario and New Brunswick.
However the trend is expected to reverse in 2013, with national sales dipping 0.3 percent to 457,200.
"So long as the European debt crisis is contained and a global economic recession avoided, low interest rates will support Canadian home sales and prices," CREA Chief Economist Gregory Klump said in a statement.
The Bank of Canada will make its next interest rate announcement this week with analysts anticipating no change to the current 1 percent target, according to a Reuters survey.
On Monday, Finance Minister Jim Flaherty said the Canadian economy should grow modestly and the budget deficit should gradually be eliminated.
CREA also said the average home price this year is expected to fall 1.1 percent from 2011 to C$359,100 ($363,500), down from C$363,116 in 2011. In 2013, the average price is forecast to rebound 0.9 percent to C$362,300.
Ten of 14 economists and strategists surveyed last month in Reuters' first poll on the Canadian housing sector said they expect home prices to stall with a mere 0.1 percent rise this year, and the same in 2013.
In contrast to the United States, the housing market in Canada has remained robust, though some officials have warned of rising household debt levels while mortgage rates remain low.
"There has been some moderation in the housing market. I remain concerned about the condo market, quite frankly," Flaherty said on Monday.
"Interest rates are relatively low, so I again encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages because rates will go up some day and I would not want people to get caught."
March 5, 2012 Thomson Reuters Article, available online at http://www.reuters.com/article/2012/03/05/canada-economy-housing-idUSL2E8E569Z20120305
Tuesday, October 25, 2011
Bank of Canada Interest Rate Announcement
As was universally anticipated, the Bank of Canada opted to hold its target overnight rate at 1 per cent this morning. Ongoing uncertainty in the Euro-zone continues to weigh heavily on the Bank's outlook. In its statement accompanying the interest rate decision, it was noted that the bank is now projecting a contained Euro-crisis, but also a brief recession in the Euro-area due to ongoing deleveraging and fiscal austerity. The Bank also expects continued weakness, but no recession, in the United States through the first half of 2012 before a resumption of stronger growth. Given various challenges in the global economy, the Bank of Canada trimmed its outlook for Canadian economic growth to 2.1 per cent in 2011, 1.9 per cent in 2012 and 2.9 per cent in 2013 which is in line with our own forecast. On inflation, the Bank now expects slack in the economy to persist longer than originally forecast, leading to a closing of the output gap at the end of 2013. This implies softer than expected inflation in coming quarters, with consumer price growth moderating before returning to the Bank's 2 per cent target by the end of 2013.
Overall, this morning's statement shows a very cautious Bank of Canada that is unlikely to make any significant movements on interest rates over the next two to three quarters. Further monetary tightening will be highly contingent on a brighter growth outlook in the United States and a credible solution to the Euro sovereign debt crisis. Therefore we expect the Bank of Canada to remain on the sidelines through the end of 2011 and the first half of 2012.
BCREA, Chief Economist
Thursday, July 29, 2010
Mortgage Rate Forecast
The Canadian economy grew at the exceptional pace of 6.1% in the first quarter of 2010, propelled by a booming housing market, strong consumer spending and the rebuilding of private sector inventories. Moreover, growth in the second quarter of 2010, while not expected to register the sizzling pace of the previous six months, should be a robust 3%-4%.
However there are signs that the economy, if not stalling out, may be slowing down. April’s monthly GDP print was disappointingly flat as consumers moved to the sidelines, sending retail sales lower by almost 2%.
Even if Canadian consumers are beginning to tire out, economic growth should be supported in coming months by projects initiated under the federal government’s infrastructure stimulus plan. This stimulus will provide a needed boost to the economy through the remainder of 2010, with projected impacts peaking in the third quarter, but will create a drag on growth in 2011 as the stimulus is withdrawn from government expenditure.
The strength of the Canadian economic recovery over the past six months is evidenced by the over 300,000 jobs created in the Canadian economy since the beginning of the year. While this exceptional rate of job creation stands in stark contrast to the gloomy employment situation of our southern neighbour, it also re-affirms the need for the Bank of Canada to begin withdrawing its emergency level of monetary stimulus by raising interest rates, particularly given the proximity of core inflation to its 2% target rate.
The withdrawal of monetary and fiscal stimulus from the Canadian economy in coming months will result in slower growth in both the second half of 2010 and into 2011. This growth slowdown may be further exacerbated by weaker than currently anticipated US and global economic growth as well as a higher Canadian dollar resulting from a rise in Canadian interest rates relative to the United States.
In all, slower economic growth and inflation that is within the Bank of Canada’s comfort zone should mean that, while interest rates are certain to rise, the pace of interest rate increases should be orderly and the level of interest rates will remain near historic lows through the remainder of the year.
By Cameron Muir, Chief Economist and Brendon Ogmundson, Economist, British Columbia Real Estate Association
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